US equity futures declined on Thursday as oil prices extended their advance, fuelling inflation concerns.
The prospect of prolonged tensions in the Middle East overshadowed the announcement of a coordinated release of strategic petroleum reserves by major economies, a move initially intended to stabilise energy markets.
Instead, the persistent rise in crude prices is reinforcing fears that inflationary pressures could remain elevated, affecting the Federal Reserve’s monetary policy outlook.
As a result, expectations of interest rate cuts have moved toward only one reduction later this year, a shift that has pushed US Treasury yields higher across the curve, weighing on equities.
While recent economic data continue to point to a resilient US economy, the near-term direction of equity markets is likely to remain dominated by geopolitical developments and energy prices. The latter could create headwinds for the economy in the event of prolonged disruptions in the Middle East.
While energy and defence stocks could benefit from such conditions, inflation-related concerns could continue to exert selling pressure on overall indices. Investors will also closely monitor upcoming US GDP and PCE inflation data, which may influence expectations for the Federal Reserve’s monetary policy trajectory.
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